Well, here we are. You’ve done all the legwork. You answered all the questions, and handed over all the relevant documents. All that’s left for you to do is to wait and see what your rate will be.
In an ideal scenario, the rate offered would be so low, you’ll be like that lady from the TV commercial, running away from the store before they realize they’ve made a mistake.
But if it doesn’t feel like a steal right off the bat, if the rate is not as good as you expected, don’t despair. There are steps you can take to obtain a lower rate. Let’s look at a few of them.
Live in the Property
A lender wants to know that you’ll be taking good care of their property (yes, legally, it is their property until you’ve paid off your mortgage). If you decide to rent out the property you’re mortgaging, the lender knows it will be more difficult for you to keep the property in perfect condition.
You and I know that a poorly maintained property loses a ton of its market value. Lenders know it too. If they’re stuck with your property because you’ve defaulted on your payments, they may have a hard time selling it to recoup their money if it’s not in good shape. It’s a riskier proposition for a lender. The cost associated with this higher risk is passed on to you.
Clean Up
When considering your loan application, lenders want to ensure that you will be able to make your payments. That’s why they ask for a confirmation of revenue. And also why they take a close look at your credit situation. They want to know if you owe anybody money and, if so, how much.
If you want to get the best rate, make sure your debts are paid as much as possible, if not totally. Get the balance on your credit cards under 25% of the available limit (i.e. less than $2,500 on a $10,000 limit). Pay off that car loan and your student loans.
The less you owe, the higher your credit score will be, and the better your chances of getting a lower rate will be. Having some cash stowed away in a savings account, or in GICs, for example, is never a bad idea. Lenders will see that you are able to put some money aside – and that you have a nice cash reserve, should something major happen.
Improve Your Credit Score
The Beacon Score is a credit scoring method used by Equifax to provide a credit score to a lender following a hard inquiry. Scores can range from 300 to 900. This is not golf – you want the highest score possible. To be considered as having good credit in the eyes of most lenders, your Beacon Score should be 680 or higher.
Want to find out how to get to this level? Talk to a nesto mortgage expert.
Purchase a Marketable Property
Say your intent is to purchase a run-down property, renovate it, and flip it to another buyer for a profit. That’s a great project. Just don’t expect lenders to do you a favor by lowering their rates, because it is not what is considered a ‘marketable property’.
Lenders typically add a rate premium for less desirable properties, such as a vacant property with holes in the roof and missing floorboards, or a property located 100 km from the closest fire station. This type of property is very hard for a lender to sell if they have to foreclose on it because you’ve defaulted on your payments. Again, the cost associated with this risk is passed on to you, the borrower.
Be a Shrewd Negotiator
Buying a house will be probably among the most important financial decisions you make over the course of your life. You need to treat it as such. You should give it all you’ve got.
And to do so, you COULD take 3 days off work. Clear your schedule. Send the kids off to their grandparents.
Then, you COULD enlist the services of (at least) 2 brokers and 2 different banks or financial institutions, and you COULD play them off of each other in a financial tug-of-war.
After all, you’ll be giving them a lot of money over the term of your mortgage. They need to earn it.
Once you receive one lender’s offer, you COULD go back to the other lenders and show them what they’re up against.
You COULD have them compete for your business.
So, yes, you COULD do all that. 😅
But, doesn’t that sound archaic? Completely crazy? Yeah, we agree. That’s why we built nesto.☀️
Because you deserve a simpler way to achieve your dreams.
